Nord Stream Gas Pipeline (NSGP), Russia-Germany

It is projected that Europe will require more than 100 billion cubic metres of natural gas per annum by 2010. Part of this requirement will be supplied through the 1,200km-long North European Gas Pipeline (since October 2006 the pipeline and operating company have been renamed as Nord Stream), which will transport natural gas from Yuzhno-Russkoye oil and gas deposits in the Leningrad region of Russia to Germany.

Scheduled for completion in 2010, the Nord Stream Gas Pipeline (NSGP) has an estimated cost of over €4bn by a German-Russian JV of JSC Gazprom, BASF AG and E.ON AG.

The project consists of a twin-pipeline with a combined capacity of 55 billion cubic metres a year. The Yuzhno-Russkoye field will contribute the bulk of gas supplied through the NSGP. Additional gas will be procured from reserves in Yamal Penninsula, Ob-Taz bay and Shtokmanovskoye.

The NSGP project will enable Gazprom, for which Germany is the largest export market, to become one of the major gas producers in the world. The new project will strengthen Gazprom's position as a major supplier in Germany and Western Europe.

NORD STREAM HISTORY

The project first started in 1997 when Gazprom and the Finnish company Neste (later known as Fortum) formed a joint company, North Transgas Oy, for construction and operation of a gas pipeline from Russia to Northern Germany across the Baltic Sea.

The German partner for the project was Ruhrgas (later EON). In April 2001, Gazprom, Fortum, Ruhrgas and Wintershall commissioned a joint feasibility study for the pipeline. In November 2002, the Management Committee of Gazprom approved a schedule of project implementation.

In May 2005, Fortum withdrew and sold its 50% stake in the project to Gazprom. As a result, Gazprom became the 100% owner of North Transgas Oy. In September 2005, Gazprom, BASF and EON signed a basic agreement on the construction of a North European Gas Pipeline. In November 2005, the North European Gas Pipeline Company (later Nord Stream) was incorporated in Zug, Switzerland.

In December 2005, Gazprom started construction of the Russian onshore section of the pipeline. On 30 March 2006, the shareholders' committee of the North European Gas Pipeline Company held its first meeting. On 4 October 2006, the pipeline and the operating company were officially renamed Nord Stream.

NSGP PROJECT OVERVIEW

The onshore section of NSGP in Russia is nearly 917km long. The remainder will be a marine gas pipeline under the Baltic Sea from Portovaya Bay (Vyborg) to the coast of Germany (at Greiswald). Marine gas pipelines will be used for gas supplies to Great Britain, Finland, Sweden and other counties. Preliminary studies on seabed structure and the impact of a marine gas pipeline are ongoing, with Greifswald provisionally identifed as the project's landfall.

The Yuzhno-Russkoye field has estimated gas reserves of more than one trillion cubic metres, including 700 billion cubic metres of proven reserves. The field is being developed at an estimated cost of €1bn. NSGP will also be fed with additional gas supplies from fields in Yamal Peninsula, Ob-Taz bay and Shtokmanovskoye.

Initially, the gas will be transported through a single pipeline with a capacity of 27.5 billion cubic metres a year.

A second pipeline will subsequently be laid, taking the combined gas supply capacity of NSGP to 55 billion cubic metres a year.

With Gazprom starting the construction works, the first 100km of gas pipeline on the Leningrad region were laid by mid-2006. Drilling works at Yuzhno-Russkoye gas field are in progress.

According to the plan, the first leg will be built by 2008–2010 and the second one in 2010–2012. The diameter of the pipe will be 1,220mm (48in), the wall thickness 38mm and the working pressure 220bar.

There will be a service platform in the Swedish economic zone, 90km to north-east of Gotland island. The size of the platform will be 30m x 30m and it will rise approximately 35m above sea. The platform is to be used for maintenance and service of the pipelines, including launch and reception of testing and diagnostic equipment, control of gas parameters and placement of isolation equipment (valves).

NSGP SUPPLIERS

WINGAS, a natural gas trading company, will supply gas for consumers in Germany and Western Europe. Through NSGP, WINGAS will procure nine billion cubic metres of natural gas a year for a period of 25 years. The WINGAS and E.ON Ruhrgas pipeline systems in Germany will supply gas from NSGP to E.ON and BASF.

RUSSIAN ONSHORE SECTION

The Russian onshore section of the NSGP began construction in December 2005 in the town of Babayevo (Vologda Oblast), and is expected to be complete by 2010.

The section will run from Gryazovets to the coastal compressor station at Vyborg in the Leningrad region. The length will be 917km, the diameter of the pipe is 1,420mm and working pressure will be 210atm, which will be secured by six compressor stations (the transportation capacity of gas pipeline will be 27.5 billion cubic metres a year).

The Russian section of the pipeline will also supply gas to the Northwestern region of Russia (St Petersburg and Leningrad Oblast). It will be constructed and operated by Gazprom. According to the Finnish natural gas company Gasum, a branch pipeline in Karelia will connect the onshore section of the pipeline to Finland.

BALTIC SEA OFFSHORE SECTION

The offshore section of the NSGP will run from the Vyborg compressor station at Portovaya Bay under the Baltic Sea to Greifswald in Germany, with a total length of 1,196km. Over 22km will run inside Russian territorial waters, 96km in the Russian economic zone, 369km in the Finnish economic zone, 482km in the Swedish economic zone, 37km in the Danish economic zone, 112km in the zone disputed between Poland and Denmark, 33km in the German economic zone and 33km in German territorial waters.

In April 2007, it was announced that due to environmental concerns further optimisation of the route will be explored in the Gulf of Finland in the economic zone of Estonia, further south of Gotland in the Swedish economic zone and near Bornholm, Denmark.

WESTERN EUROPEAN SECTION

The Western European part of the Nord Stream pipeline project includes two transmission pipelines in Germany. The southern (OPAL pipeline) will run from Greifswald to Olbernhau near the German-Czech border. It will connect Nord Stream with JAGAL (connected to the Yamal-Europe pipeline) and STEGAL (connected to the Russian gas transport route via Czech and Slovak republics) pipelines.

The western pipeline (NEL pipeline) will run from Greifswald to Achim, where it will be connected with the Rehden-Hamburg gas pipeline. In conjunction with the MIDAL pipeline it will create Greifswald-Bunde connection. Further gas delivery to the UK will be made through the planned connection between Bunde and Den Helder, and from there through the offshore interconnector Balgzand – Bacton (BBL Pipeline).

BENEFITS

By passing Poland, Lithuania, Estonia, Belarus and Ukraine, the NSGP project will provide a new channel for Russian natural gas exports to Europe and minimise the sovereign risk involved in cross-border projects.

The project also reduces the cost of transportation. The Scandinavian countries will get gas through the NSGP project, which will also ensure a reliable gas supply to Western Europe, north-west Russia and the Kaliningrad exclave.

In addition, the new Gryazovets-Vyborg pipeline – via Vologda and Leningrad regions – will connect the NSGP with the Russia's United Gas Transmission system to cater for gas demand in the St Petersburg and Leningrad regions.

KEY PLAYERS

OAO Severnefte Gazprom, a 100% subsidiary of OAO Gazprom, was given the licence for exploration and development of Yuzhno-Russkoye oil reserve.

JSC GAZPROM, BASF AG and E.ON AG signed a joint venture agreement on 8 September 2005 to build the pipeline. As per the agreement, Gazprom holds a 51% stake in the JV with BASF and E.ON AG holding 24.5% each.

WINGAS has formed an alliance with OAO Gazexport for procuring gas from Russia. WINGAS is a joint venture of Wintershall, a wholly owned subsidiary of BASF AG, and the Russian company OAO Gazprom. Wintershall holds a 65% stake in the joint venture and OAO Gazprom the rest.